Revenue $6.4m with 34.4% net profit

Just a quick note before we dive in…

The secret to success = having high energy.

Have you ever met a low energy yet successful entrepreneur?

Me either.

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Want to acquire profitable companies with $5-15 million in revenue and double their profits?

Great!

Share your vision and goals more often.

This could lead to your future co-founder or a very lucrative partnership…

You meet and talk to a lot of people. Be more open about what you build or WANT to build.

I know a few founders who became partners thanks to this.

They watched their kids practice tennis, started talking, which led to more talking, which led to eventually starting a business together.

Today, they are 50 / 50 partners and manage more than $1.3 billion in assets.

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Serious question and SHOCKER answer:

"Is it easier to increase a company's profit margins from 10% to 20% or from 20% to 30%? And why?"

A question for the vice president of HoldCo, which has ca 80 companies in its portfolio and trades for $3.5 billion.

Even though it was a room full of VERY smart people, the answer to most of them was still a true shocker...

His take on this: "It is much easier to increase a company's profit from 20% to 30%, because if the company's margins are already 20%, it means that they are producing a product that already offers a very high value to customers, otherwise they would not be able to do such margins.

To grow a company's profit from 10% to 20%…

It's very difficult because you're making a product or providing a service that's a commodity and doesn't have a strong brand, or moat or when it comes to manufacturing, it's just a contractor.”

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Want a better IRR for your equity on your future deals?

Get better at negotiating seller financing.

Let’s say you want to acquire a very small company with an EBITDA of $300,000

When sitting down with owners, it's great to ask if they have a specific price or structure in mind or not.

Often, once they have something in mind, it's very difficult to move them away from that price number or structure that they have in mind.

Smart thing to do:

Trying to find out their sensibilities and what do they really care about.

A great question to ask at a very early stage (AFTER you've gained trust):

What are you going to do with the money?

Try to paint a picture on their mind, "Let's say we close the deal and tomorrow you get a check for $950,000 - what are you going to do?"

This answer will give you a better idea of whether or not they really need the cash, and if not, you'll have a much better chance of negotiating better payment terms when you acquire the business.

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Let's say you want to acquire a very traditional $5-10 million business.

First, what are your chances of acquiring the company?

Can they sell it to PE? Probably not because it's too small…

Can they sell it to their competitor? Of course.

Yes, their family members (often son, or daughter) may wish to continue running the business.

Still a very low probability.

But when they still decide to sell and you're there, building relationships – calling them, asking how things are going.

There is a good chance they will come back to you one day saying they want to sell the business to you and not to others.

Price may be secondary.

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There are so many finance guys much smarter and better than you…

Folks 100x more experienced in deal making, structures, excel, fundraising, etc.

Yet… you have these TWO huge advantages over them:

1. Not overthinking everything

2. Willingness to take action despite not knowing everything

DOING > talking

Practice > theory

Yes, again, they may work for very large private companies, PE and investment firms, advise very big deals, raise $10 million tickets.

But they will never leave and never compete with you buying smaller >$1.5m EBITDA businesses

Mainly because they have their own fears and they tend to overthink a lot of things. Plus, what they do is more convenient.

So, if you're the one in the trenches with your back full of scars, keep building, keep going.

These are your superpowers, trust them, use them.

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There are about 200,000 mid-market companies in both Europe and the US.

Statistically, around 8,000 private equity deals were completed globally.

That’s less than 4% which means not too many companies are being bought or sold each year.

So much opportunity.

1. Get into the game early and don't stop until you get what you want

2. Build a team that wants to do it with you

3. Build a track record with smaller deals

4. For larger deals reinvest the earned profit and raise additional capital if necessary

5. Don't forget to spend time with your family and enjoy life

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A recent insight after interviewing 40 holdco builders, serial acquirers and investors…

The top 0.01% are playing the long game.

You have a much better chance of building a profitable business and wealth for your family ONLY with a patient mind.

Pick a game that you can play till you’re very old because that's often what it takes to become very good at it, and that’s also when the real compounding starts to show its first large signs.

• Sunny Desai didn't manage a $150 million fund in his early 30s, but he does today.

• Greg Isenberg didn't run a very lucrative $10M+ revenue HoldCo in his 20s, but he does today.

• John Caple's first private equity raise wasn't $800 million; today they manage billions in assets

• Rafael Quinn didn't run a $127 million holdco in his early 30s, but that's exactly what he's doing today

Lots more wild stories like this.

So, imagine how good you'll get at something when you do this for 10, 20, or even 30 years straight?

Easily top 1%… if not better.

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How has been the week in the small private equity world?

Consumer loan company

As a picture says more than a thousand words, here it is:

That said, from October 3rd to October 10th we will issue another round of bonds.

The bonds are secured by our portfolio and will be trading on the Nasdaq Baltic. The size of Modena’s issue of secured bonds is EUR 850,000. Each bond has a nominal value of EUR 1000. They have a fixed annual coupon rate from 11.5% to 13% with quarterly payments.

Let me know if you’d like to learn more of what we do (I am more than happy to host a meeting where we show our backoffice and everything).

Find out more here where you can see a short video I recorded.

In May this year, we raised EUR 744,000 from 31 investors.

Traditional businesses

There might be an interesting investment opportunity in the small niche manufacturing space.

Ground power units for aviation to be specific.

The last three years in numbers:

• 2021 revenue $8.1m / net profit $1.6M

• 2022 revenue $6.4m / net profit $2.2M

• 2023 revenue $7.7m / net profit $978k

Getting additional information in the coming weeks.

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Special podcast episode this week!

Jeremy has bought and sold over 100 businesses, but never uses a broker.

1. Treat a company like a product. You buy one and then you sell it

2. Again, never use brokers!

3. Buy right and you’re gonna win

4. Do more of what works

5. Joint ventures and the beauty of it

Great story with Jeremy building a holding company in Dubai while the team is based in Singapore.

Important note: He does all that while traveling twice a month with the family.

Enjoy!

Here are the links to Spotify, YouTube and Apple Podcast.

Very controversial opinion from him when buying sub $10 million broker representative deals:

“I’m the best vendor, ever, because most vendors are all emotionally wrapped up about their business and emotionally wrapped up about some price the dumb broker said they’re going to get for their business. Which then ends up them stopping the business.

I’m pragmatic about the valuation, I’m pragmatic about the deal structure, plus, I would have all the sh*t together you need to show to a potential buyer where as if you go to a dealer which broker recommends, they don't even have a data which is ready and up to date with information:

1. they’re still running half of their personal expenses through the company,

2. they still have paper based systems that aren’t documented.

All those things the buyer needs to see often just don’t exist in brokers represented sub 10 million revenue companies.

So by having all of those things you’re immediately in the top 1% because most companies are not sellable. And they would not survive the due diligence.”

That’s all for today.

Thanks a lot for following the journey.

Take care,

Mikk Markus / PrivatEquityGuy